Michael Saylor, MicroStrategy sued for tax fraud by D.C. Attorney General

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Microstrategy (NASDAQ: MSTR) and its BTC maximalist founder Michael Saylor are being sued by the District of Columbia for $25 million in unpaid taxes.

On Wednesday, District of Columbia Attorney General Karl A. Racine announced that his office was suing Saylor based on the MicroStrategy founder allegedly having “lived in the District for more than a decade but has never paid any D.C. income taxes.” Racine also stated that MicroStrategy was being sued for “conspiring to help [Saylor] evade taxes he legally owes on the hundreds of millions of dollars he’s earned while living in D.C.”

NEW: Today, we’re suing Michael Saylor – a billionaire tech executive who has lived in the District for more than a decade but has never paid any DC income taxes – for tax fraud.

— Archive: AG Karl A. Racine (@AGKarlRacine) August 31, 2022

Racine revealed that the suit represented the first fruits of the recently amended False Claims Act, which encourages whistleblowers to “report residents who evade our tax laws by misrepresenting their residence.” The suit was reportedly initiated (under seal) with a private law firm back in April 2021 and Racine’s office took charge after its own investigation. The whistleblowers could receive up to 30% of any funds received via the complaint.

The D.C. Superior Court complaint alleges that Saylor’s principal residence is a 7,000-square-foot waterfront penthouse—which Saylor christened ‘Trigate’—in D.C.’s Georgetown neighborhood. Saylor reportedly spends at least 183 days per year in D.C., qualifying him as a ‘statutory resident’ for the purposes of D.C. taxation.

The suit further alleges that Saylor has been “masquerading” as a resident of either Florida, which doesn’t impose personal income taxes, or Virginia, which has lower taxes than D.C. and is home to MicroStrategy’s corporate HQ. Saylor registered to vote in Miami-Dade County in 2012, the same year he acquired a $13.1 million residence in Miami Beach, although he has reportedly only ever voted by absentee ballot. Between 2013 and 2019, he reportedly resided in Florida for as little as 28 days per year.

The complaint cites Saylor’s own Facebook posts, the flight records of MicroStrategy’s corporate jet and the docking of “at least two of his luxury yachts” on the Georgetown waterfront as confirming his perpetual presence in D.C., even as he “fraudulently purported” to reside in those other states.

As always when it comes to matters involving Saylor, there’s a hubris component to this complaint, which claims that Saylor “openly bragged to friends and acquaintances about evading D.C. taxes and encouraged others to follow his example.” Saylor reportedly called others in his circle “fools” if they didn’t emulate his tax-dodging strategy.

MicroStrategy’s culpability stems from allegations that it “actively conspired” to enable Saylor’s fraud, including by “filing inaccurate W-2s with the address of his property in Florida” and by failing to withhold and remit D.C. taxes. The complaint claims that the company’s former Chief Financial Officer objected to this arrangement “in or about 2014,” based on his knowledge that D.C. was generally where Saylor rested his head.

To avoid implicating the CFO or other execs in any wrongdoing, MicroStrategy reduced Saylor’s annual salary to $1.00, which Saylor painted at the time as ‘an act of service’ as MicroStrategy was enduring some rough financial quarters. However, the complaint notes that Saylor nonetheless enjoyed the “high cash value of fringe benefits” including use of the corporate jet and “gross-ups to offset federal taxes on these benefits.”

Racine’s office is seeking not only the $25 million in taxes Saylor avoided paying on his D.C. income but also treble damages, civil penalties, investigation costs and other fees. Racine estimated that the District could collect “more than $100 million.”

Saylor delayed any public comment on the charges, continuing to tweet his usual menu of pro-BTC bafflegab as if nothing was amiss. He eventually released a statement saying: “Although MicroStrategy is based in Virginia, Florida is where I live, vote, and have reported for jury duty, and it is at the center of my personal and family life. I respectfully disagree with the position of the District of Columbia.” 

Meanwhile, MicroStrategy issued a statement saying D.C.’s “claims against the company are false and we will defend aggressively against this overreach.” (Emphasis added.) 

Everything old is new again

This is hardly the first time Saylor’s fraudulent activities have landed him in federal authorities’ crosshairs. In 2000, the U.S. Securities and Exchange Commission (SEC) brought fraud charges against Saylor and several other execs after MicroStrategy was caught fudging its earnings to artificially inflate its stock price.

Saylor ultimately paid a $350,000 fine and he and his fellow execs coughed up over $10 million worth of ill-gotten gains. MicroStrategy was forced to restate fake profits as real losses and the resulting share price crash cost Saylor billions (with a ‘b’), making him the single-biggest loser of the late-90s dot-com bubble.

"take all your money & buy #bitcoin.. figure out how to borrow more money to buy more bitcoin.. go mortgage your house & buy bitcoin with it" @michael_saylor March 2021 bitcoin $56k

Be careful giving & taking financial advice, esp. w/alternative assets

bitcoin today ~$33k pic.twitter.com/gguNjoEMcr

— @jason (@Jason) June 9, 2021

After spending a decade out of the headlines, Saylor—a former Bitcoin skeptic—apparently identified BTC as his ticket back into the limelight. Using all of MicroStrategy’s cash reserves, Saylor went on an unprecedented BTC buying spree. When he ran out of cash, Saylor issued additional MicroStrategy equity, then borrowed billions more, all of which was used to buy more BTC. Saylor and MS eventually amassed a cache of nearly 130,000 BTC tokens, effectively turning MicroStrategy into a BTC exchange traded fund.

The vainglorious Saylor proceeded to bask in the adoration of the laser-eyed BTC maximalist horde, while Wall Street analysts cheered as MicroStrategy’s share price topped $800 last November. But when the crypto bubble burst, so did MicroStrategy, which opened Wednesday’s trading around $250 then dipped as low as $230 once news broke of Saylor’s D.C. legal woes.

In a move that now suggests he knew the axe was about to fall, Saylor stepped down as MicroStrategy’s CEO in August after an ugly Q2 financial report that showed a $1.06 billion loss on BTC’s Icarus-like trajectory. Sadly, anyone who followed his 2021 advice to mortgage their homes to buy BTC is likely living on the streets by now—whether those streets are in D.C., Florida or Virginia.

Michael Saylor: Go F*ck yourself…Tax that! 😂#Bitcoin #BTC @michael_saylor pic.twitter.com/C0NvDBzU4D

— Bitcoin Archive (@BTC_Archive) January 24, 2021

The now unsealed whistleblower complaint that initiated the D.C. suit notes Saylor’s BTC obsession, including a public interview Saylor gave in January 2021 in which he offers up BTC as a way to hide “a hundred million dollars” from government taxation by claiming that you lost your BTC private keys “in a boating accident.” After that, “you can tell everybody to go fuck themselves … Tax that!”

To which, D.C.’s Attorney General appears to have said: game on.

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Editor’s note: This article is updated to include Michael Saylor’s statement.